Share

Friday, April 22, 2011

Obama: better hedge than wedge

John Judis makes a strong case that Obama has got the wrong strategy for reelection: that by focusing on deficits, he is playing on Republicans' turf; that he should focus relentlessly on jobs, which is what the electorate says it cares about; and that he should basically be working to slam the GOP relentlessly for blocking whatever sheaf of job-growth plans he puts out, as they will surely do.

Perhaps Judis is right. But an unspoken premise in his argument is that messaging matters more than policy. Obama knows that as of now he can't get any job growth plans through Congress. Should he run on Republicans' refusal to pass his proffered plans?

What I think Judis should at least acknowledge is that Obama has already taken the best shot he could, in the runup to 2012, at juicing the economy. His huge gamble was the tax cut deal of December 2010.  In exchange for a Democratic pearl of price -- early sunsetting of the Bush tax cuts for the wealthiest 2% -- he won an (under the circumstances) enormous jolt of fresh stimulus, the key components of which were 13 months of extended unemployment benefits, a bit more than a 32% cut in individuals' payroll tax,* and accelerated investment writeoffs for businesses.  Moody's Mark Zandi pegged the value of Democratic agenda items in that deal at $336 billion. Republican agenda items in that deal worsen the deficit for relatively little benefit -- they were less efficient stimulus, but stimulus nonetheless.

In the 2011 budget deal, Judis may be right that Obama was playing on GOP turf rhetorically. But in the actual negotiations, he apparently did quite well. The general consensus seems to be that about $20-25 billion  was cut out of the 2011 budget -- about two thirds of one percent of the whole, and five percent of the value of the Democrats' agenda items in the tax cut deal as calculated by Zandi.  Not a bad scorecard since the GOP blowout in November. 

Substantively, too, Obama has been saying since the transition in fall 2008 that the structural deficit is what keeps him up at night. He wants stimulus, but he also wants a signal to markets that the U.S. is prepared to grapple with the deficit. He believes in the "confidence fairy" to a limited extent. The timing of slowing and then stopping stimulus spending in an inevitably slow, post-banking-crisis recovery is delicate, fraught with risk in two directions.  His macro approach has been to trade hundreds of billions in tax cut stimulus for a few degrees' turn of the discretionary spending battleship -- along with what may eventually prove a Herculean effort to bend the healthcare cost curve in the ACA.

Obama has been driving Paul Krugman and other leading liberal thinkers insane since early 2010 by talking about the need for government "belt tightening." Why? Kevin Drum, cudgeling his brains after the 2011 budget deal was announced as to why Obama would boast about the spending cuts, defaulted to taking the president at face value:

My best guess is also the most boring one: He actually thinks the cuts are a good idea. Macroeconomically they don't make sense, but as a signal they might be pretty powerful...my guess is that (1) Obama is serious about wanting to rein in the long-term deficit, (2) he thinks the cuts in this year's budget are a good way of signaling his seriousness, and (3) he also thinks that a few tens of billions of dollars in lost spending will have such a minor macroeconomic effect that it's a small price to pay.
Three days later, in the speech in which he laid out his own long-term budget blueprint, Obama provided some support for Drum's mundane hypothesis (not surprising, since he's been in some ways singing this tune for two years and more):
Indeed, to those in my own party, I say that if we truly believe in a progressive vision of our society, we have an obligation to prove that we can afford our commitments. If we believe the government can make a difference in people's lives, we have the obligation to prove that it works -– by making government smarter, and leaner and more effective. 
Again, Judis may be right that this sentiment, welded to an agenda that has put long-term budget negotiations front and center, constitutes a poor messaging strategy. Powerfully, he cites a Nov. 11, 2010 poll  in which 56% said they wanted the new Congress to focus on the economy/jobs and just 4% on the deficit.  But that means that people want the job picture to improve; it doesn't prove that the electorate would be impressed by the president putting out a sheaf of job-growth proposals that will never pass.  In general, I suspect Judis puts too much stake in messaging.  Here's his account of why George H. W. Bush lost to Bill Clinton:
If you look back at the U.S. economy in 1991 and 1992, you find something very curious. The recession took place during 1991—growth was negative that year—but in 1992, the economy grew 3.4 percent, and the unemployment rate began falling from a peak of 7.8 percent in June to 7.3 percent in October. The economy was not “good,” and there is always a lag in the public’s perception of an economic recovery; but there is still a gap between fact and perception that politicians try to fill with their version of the facts. That’s the role of politics and political campaigns.

George H.W. Bush lost in 1992 because he failed to fill that gap with his perception of the economy. He failed to convey to voters that he knew or cared about the lack of jobs. They saw him as more interested in foreign wars than in domestic distress—a point that Clinton made, but that was also hammered home by primary opponent Pat Buchanan and by independent candidate and erstwhile Republican Ross Perot. It was, above all, a political failure on Bush’s part to convince voters that he was doing something about the economy, and that what he had already done was responsible for the drop in unemployment and increase in growth.
Someone dial Brendan Nyhan and Jonathan Bernstein on this one. Looks to me like the 1992 recovery simply began too late to help Bush.  For lucky Ronald Reagan, whose approval ratings cratered at 35% in January 1982, shortly after unemployment peaked at 10.8%, the first dramatic drop in the unemployment rate came in July 1983, from 10.1 to 9.4%, and from thence all the way down to 7.2% in June 1984 -- the point in the election cycle at which the numbers began falling for Bush. Clinton's political genius may have helped at the margins, but for all but the most hapless presidents reelection is largely an economic lottery.

Obama is not exactly a triangulator or a split-the-difference centrist. He is something of a trimmer -- or, more precisely, a hedger in something akin to the financial sense of the term "hedge."  That is, he blends hedging strategies into his chosen path, which inevitably slow its progress but are designed to maximize long-term gain.  Hence his Afghan surge with timeline and hard cap on troop numbers; his Libyan intervention swiftly handed off to NATO; his by-liberal-standards small and tax-cut-heavy stimulus; his cost-control-laden ACA -- and even his macro decision to pursue healthcare reform when jobs were the most immediate pressing concern. Some or all of these policies may prove too intricate or cross-directional to reach desired ends. It is frankly too early to judge how well any of them will work, or even the terms on which they will work -- for example, the Karzai government could be judged a total failure by any impartial standard, but the U.S. might still extricate itself from Afghanistan without a total meltdown to civil war or Taliban takeover. But the long term -- to whatever extent possible in the mad contingent crush of decisions facing any president -- is Obama's default focus.

* This is generally described as a 2% payroll tax cut. That's 2% out of the 6.2% that individuals normally pay. Wouldn't it behoove Democrats to stress that they're cutting people's payroll taxes by a third?

No comments:

Post a Comment

Post a Comment